A Political Economy of Contemporary Capitalism and its Crisis

by Dimitris P. Sotiropoulos, John Milios, Spyros Lapatsioras

The recent financial meltdown and the resulting global recession have rekindled debates regarding the nature of contemporary capitalism. This book analyses the ongoing financialization of the economy as a development within capitalism, and explores the ways in which it has changed the organization of capitalist power. The authors offer an interpretation of the role of the financial sphere which displays a striking contrast to the majority of contemporary heterodox approaches. Their interpretation stresses the crucial role of financial derivatives in the contemporary organization of capitalist power relations, arguing that the process of financialization is in fact entirely unthinkable in the absence of derivatives. The book also uses Marx’s concepts and some of the arguments developed in the framework of the historic Marxist controversies on economic crises in order to gain an insight into the modern neoliberal form of capitalism and the recent financial crisis. Employing a series of international case studies, this book will be essential reading for all those with an interest in the financial crisis, and all those seeking to comprehend the workings of capitalism.

Genres: Economics, Nonfiction

288 pages, Paperback

First published January 1, 2013

Reviews

[Jasmine · Rating 2 out of 5]

One incorrect view of the world is that capitalism was going swimmingly until finance came in and distorted everything. As the authors trace in this book, financialization was present centuries ago (there is an amusing story about 18th century Genevan bankers speculating by identifying young women of good life expectancies and purchasing lifetime annuities for them from the French state). More importantly, the different classes of capitalists cannot be so neatly separated from each other: debt and futures and other financial tools are crucial for the smooth functioning of a firm, and industrial capitalists invest their gains in financial instruments as part of a balanced portfolio. In place of this notion, the authors present a better way of understanding the role of finance in neoliberal capitalism: one of risk commodification and the leveraging of risk to organize capitalists and states to the benefit of capitalists.

The book is a challenging read: the intended audience is unclear, the argument is poorly organized, and its main points are often stated more than proven or fiercely defended. It spends an inordinate amount of time explaining the genealogy of “finance as parasite” ideas, coyly pointing out how each is wrong without fully laying out their argument. When it finally comes time to put forth the thesis of the book (by Chapter 7-8!), it lands with more of a whimper than a bang. Still, I thought it highlighted some useful ideas (many taken from Marx and other writers), which I will attempt to summarize below.

Finance is inherent to capitalism, and is necessary for the efficiency we see today. It turns every last bit of savings (personal, state, or other source) into profit-generating capital, and more rapidly punishes failing capitalist enterprises and rewards successful capitalist enterprises.  Finance is fetishistic: capital is the reification of social relationships, and commands the behavior of everyone in the economy. Finance is rational: individual actors make rational decisions based on incomplete information. Finance plays a role in gathering information (on company fundamentals, etc), but also in creating information (demand, response to demand, etc). The value of financial instruments is not based on the whims or delusions or “animal spirit” of the market, but on a consensus (and ideologically-rooted) understanding of risk and future returns. Finance commodifies risk: via derivatives, without which financialization would be “incomplete”, separate components of risk are split apart and rebundled and traded.  Risk, rather than being understood as a quantification of the probable range of expected returns, should be understood as playing a normative role: firms (or states) that deviate from the behavior seen as correct under capitalist (or neoliberal) ideology will be priced as risky. This in turn makes it more difficult for these firms (states) to raise the funds needed. As a result, states and firms are disciplined into behaving according to neoliberal norms (austerity, union-busting, etc). Society is thus efficiently organized into a structure that most effectively exploits labour to accumulate capital.

Or, summarizing it in the authors’ own words:

The big secret of finance is that the valuation process does not have to do only with some competitive determination of the security price, but primarily plays an active part in the reproduction of capitalist power relations.

[Tara Brabazon · Rating 3 out of 5]

An intriguing book, written by three economists, probing the nature of contemporary capitalism. While I do disagree with their reification of Keynes and Veblen, and question the viability of Foucaultian theorizations of governmentality, the book has provocative value in the theorization of risk.

The researchers enter the contemporary period of financialization and derivatives and show how the contemporary culture of financiers misjudges and misconfigures risk. This argument adds great value to the book. The challenge is the theorizations of regulation that emerge from this financial culture. The researchers critique much of the regulatory mechanism of the EU and the EA, but leaves the excesses of US financial institutions undiscussed.

A provocative book. I disagree with much of it, but as a way to consider the damage caused through simplistic and inward theorizations of risk - the book is excellent.